Limited Company being an Inanimate Person, cannot have anything 'Personal': ITAT allows Depreciation on Luxury Sports Car used by Director [Read Order]

The Income Tax Appellate Tribunal (ITAT) company is an inanimate person and there cannot be anything “personal” and therefore, allowed depreciation claim by the assessee-company in respect of a luxury sports car by the director of the Company under section 32 of the Income Tax Act, 1961.

While considering the return filed by the assessee, Silver Spark Apparel Ltd, the AO disallowed the depreciation on luxury sport car and expenses occurred by holding that the assessee was failed to establish the purpose of purchase of sports care and nature of use for business purpose carried by it. In this respect, it is relevant to mentioned that the car racing activity or car sports activity is the prime purpose for which the owner possesses this kind of cars. According to the AO, requirement of such a car for a unit engaged in manufacturing of suits and trousers is, not wholly and exclusive necessary for the purpose of the business.

On first appeal, the CIT(A) Shri Aby T Varkey, Judicial Member and Shri Gagan Goyal, Accountant Member observed that the AO is failed to establish, on the given facts that sports car being owned by the assessee has any personal use or being not used fully for the purposes of business.

Allowing the appeal filed by the assessee, the Tribunal held that “there was one more aspect of the matter which required to be considered. The assessee, which was a private limited company, was a distinct assessable entity as per the definition of 'person' under section 2(31) of the Income Tax Act. Therefore, it could not be stated that when the vehicles were used by the directors 'even if they were personally used by the directors', the vehicles were personally used by the company, because a limited company by its very nature cannot have any 'personal use'. The limited company is an inanimate person and there cannot be anything personal about such an entity. The view was supported by the provision of section 40(c) and section 40A (5) of the Act. Once the expenditure in question was in terms as provided in sections 309 and 198 of the Companies Act, there could not be any 'non-business' purpose insofar as the assessee-company was concerned.”

To Read the full text of the Order CLICK HERE

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